4.1

What is the economic growth rate and how is it calculated?

Assume that real GDP in a country grew from $2 300 000 million in 2017 to $2 360 000 million in 2018. Calculate the rate of economic growth over that time period.

4.2 What is the GDP deflator and how is it calculated?

Use the data in the following table to calculate the GDP deflator for each year (values are in billions of dollars):

Nominal GDP ($)

Real GDP ($)

2014

13 377

12 959

2015

14 029

13 206

2016

14 292

13 162

2017

13 939

12 703

2018

14 527

13 088

Which year from 2014 to 2018 saw the largest percentage increase in the price level as measured by the GDP deflator? Briefly explain.

Nominal GDP ($)

Real GDP ($)

GDP Deflator

Percentage

Increase

2014

13 377

12 959

103.2

2015

14 029

13 206

106.2

2.91%

2016

14 292

13 162

108.6

2.26%

2017

13 939

12 703

109.7

1.01%

2018

14 527

13 088

111.0

1.19%

#QUESTION 5: Does GDP measure what we want it to measure?

5.1Why is GDP an imperfect measure of economic wellbeing? What types of production does GDP not measure? Even if GDP included these types of production, why would it still be an imperfect measure of economic wellbeing?

5.2The typical Australian works less than 40 hours per week today and worked 49 hours per week in 1920. Does this fact make the economic wellbeing of Australians today versus 1920 higher or lower than indicated by the difference in real GDP per capita today versus 1920? Explain.

5.3An article in The Wall Street Journal notes that many economists believe that GDP data for India are unreliable because 'the average firm employs just a handful of people and the overwhelming majority of the adult population works off the books and far from major cities' (Zhong, 2014).

a.What does the article mean by working 'off the books'?

b.Why would the problems listed make it difficult for the Indian government to accurately measure GDP?

c.What problems can be caused for a government or for businesses in a country if the government cannot accurately measure GDP?

5.4Each year the United Nations publishes the Human Development Report (United Nations Development Programme, 2015), which provides information on the standard of living in nearly every country in the world. The report includes data on real GDP per person, but also contains a broader measure of the standard of living called the Human Development Index (HDI). The HDI combines data on real GDP per person with data on life expectancy at birth, adult literacy and school enrolment. The following table shows values for real GDP per person and the HDI for several countries. Prepare one list ranking countries from highest real GDP per person to lowest, and another list ranking countries from highest HDI to lowest. Briefly discuss possible reasons for any differences in the rankings of countries in your two lists. (All values in the table are for the year 2014 or the most recent year available.)

COUNTRY

GDP PER CAPITA (US$)

HDI

Australia

56 328

0.935

Brazil

8539

0.755

China

7925

0.727

Germany

41 219

0.916

Greece

18 036

0.865

India

1582

0.609

Singapore

52 889

0.912

United Arab Emirates

40 438

0.835

United Kingdom

43 734

0.907

United States

55 837

0.915